Micol & Co. Ltd sells a single product, baby hamper, with a selling price of $150 and variable costs per baby hamper of $100. The company’s monthly fixed expenses are $200,000. Required: a) What is the company’s break-even point in units? b) What is the company’s margin of safety in dollars, assume sales is expected to be $800,000? c) How many baby hampers will Micol & Co. Ltd need to sell (in sales dollars) in order to realize a target profit of $500,000?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Question 5
Micol & Co. Ltd sells a single product, baby hamper, with a selling price of $150 and variable costs per baby hamper of $100. The company’s monthly fixed expenses are $200,000.
Required:
- a) What is the company’s break-even point in units?
- b) What is the company’s margin of safety in dollars, assume sales is expected to be $800,000?
- c) How many baby hampers will Micol & Co. Ltd need to sell (in sales dollars) in order to realize a target profit of $500,000?
- d) Construct a contribution margin income statement for the first month (in July) that reflects $2,400,000 in sales revenue for Micol & Co. Ltd.
- e) Provide two suggestions to Micol & Co. Ltd on how it can increase profit in subsequent months?
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